US JOBS DATA COULD STILL DISAPPOINT

CFD MARKET STRATEGIST, GFT
LAST week was a stomach-churning rollercoaster for investors and traders alike. Attention shifted away from the US and the backlash which greeted the Fed’s announcement of QE2. Instead, the focus was on tensions between North and South Korea, along with the European sovereign debt and banking crisis. These issues have the potential to deteriorate further, which should support the dollar and keep equities under pressure.

This week we get another update on US job losses with the focus on Friday’s non-farm payrolls. Last month saw an unexpected but welcome jump in employment. The headline figure showed a rise of 151,000 jobs, well above analysts’ expectations of a 63,000 rise. The prior month’s number was also revised upwards. Private employment rose 159,000 but manufacturing jobs fell 7,000 against expectations of a 5,000 gain. This will be a blow to those hoping that recent dollar weakness would help US manufacturing and exports.

A payroll gain of 151,000 is welcome but growth of this magnitude is required just to accommodate fresh entrants to the labour market from population growth and immigration. It does nothing to address the 8.5m jobs which have been lost since the end of 2007. Additionally, the labour force participation rate dropped to its lowest rate since the mid 1980s, indicating a huge rise in Americans who have stopped looking for work. This ties in with the depressing news that there are now close to 42.5m US citizens claiming food stamps, up 17 per cent on the year before. This includes people who become ineligible for emergency unemployment compensation once the limit of 99 weeks has been exhausted. Unless Congress votes to extend the programme, the number claiming food stamps will soon swell even more dramatically.

We’ll get a look at private payrolls from the ADP survey on Wednesday, and weekly jobless claims on Thursday. Last week’s claims were better than expected. But the figures may have been flattered by the shortened holiday week, so there could be a nasty upward revision to come.